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Compliance December 1, 2016
Voya Facing Lawsuit Over Stable Value Funds
A 403(b) plan participant is claiming that Voya set crediting rates for stable value funds lower than rates of return in order to make a profit.
Reported by Rebecca Moore
Darlene Dezelan has filed a lawsuit on behalf of the Cedars-Sinai Medical Center 403(b) Retirement Plan, and on behalf of all other similarly situated employee pension benefit plans covered under the Employee Retirement Income Security Act (ERISA), alleging that Voya Retirement Insurance and Annuity Company improperly profited from stable value funds offered through annuity contracts.
According to the complaint, Voya sells group annuity contracts to retirement plans which include what it labels and markets as stable value funds (SVAs). The SVAs periodically credit a certain amount of interest income to retirement plans and the participants in such plans who invest their retirement plan accounts in SVAs. This income, generally expressed as a percentage of the invested capital, is determined pursuant to the Crediting Rate. The Crediting Rate varies in that in each Crediting Period, and Voya sets a Crediting Rate for all money in and added to its SVAs in that period.
The lawsuit alleges that Voya sets the Crediting Rate well below the internal rate of return (IRR) on the plan’s deposits to the SVAs, guaranteeing a substantial profit for itself through both the retention of the spread between the two rates and/or the use of the spread for its own purposes. Further, the lawsuit says, Voya does not disclose to its retirement plan clients and their respective participants the amount of the spread, so it collects hundreds of millions of dollars annually in undisclosed compensation.
The case was filed in July of this year, and Voya defendants have filed a motion to dismiss.
Similar lawsuits were filed against MassMutual and New York Life this year.